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TSMC: still at the centre of AI growth

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s leading manufacturer of advanced semiconductors used in smartphones, computers and data centres, with major customers including Apple, Nvidia and AMD. The company recently delivered another strong set of results, driven largely by artificial intelligence (AI) demand, with earnings, revenue and margins all ahead of expectations. Management also raised 2026 guidance for revenue and capital expenditure, reflecting continued confidence in medium-term growth.

We continue to view TSMC as a high-quality business with a significant competitive advantage in advanced chip manufacturing – an industry benefiting from the rapid adoption of AI. Regardless of which companies ultimately lead in AI products and applications, the underlying chips are highly likely to be manufactured by TSMC. The company continues to materially outperform the broader foundry industry, with management expecting revenue growth of more than 30% in 2026 and AI-related revenue to grow by more than 50% annually over the next five years.

While the valuation at 21 times forward earnings is not cheap for a capital-intensive business, we think the market will continue to pay up for earnings growth of more than 20%. We also have strong conviction in these growth forecasts given the exponential growth in token usage and multi-year supply commitments by TSMC’s customers. That said, we will continue to manage the position size in the portfolio as we are very aware of China’s territorial claim over Taiwan. Our base case is not for a near-term invasion, but this remains a longer-term concern.

Standard Bank: strong returns, credible strategy

Standard Bank delivered a strong performance for the year ended December 2025, with headline earnings rising 11% to R49 billion and return on equity reaching 19.3%, at the top end of management’s target range. Results reflected broad-based momentum, supported by solid balance sheet growth, resilient trading and fee income, lower credit losses, continued cost discipline and improving contributions from its insurance and asset management business. Capital levels also remain robust, supporting both growth and a higher dividend of 1 695c per share.

At its March Capital Markets Day, management outlined a clear strategy to 2028 focused on disciplined capital allocation, deeper client relationships and leveraging its differentiated African footprint to deliver sustainable long-term growth. The group also increased its return on equity target range to 18-22%, reinforcing confidence in execution capability and earnings durability.

Our view remains constructive. Standard Bank offers an attractive combination of scale, improving returns and credible long‑term strategy delivery, positioning it well for the next phase of the credit cycle, which we expect to be led more by corporate lending than households.

OUTsurance: quality growth despite near‑term volatility

OUTsurance delivered a solid interim performance for the six months ended December 2025, highlighting the resilience of its diversified short‑term insurance model. Normalised earnings rose 7.7% to R2.3bn, supported by a strong contribution from South Africa, while gross written premiums increased 17.4%. Strong capital generation supported both an ordinary dividend of 120.7c and a special dividend of 30.3c, alongside an attractive return on equity of 32.3%.

Operationally, OUTsurance South Africa continued to benefit from disciplined underwriting and improved cost efficiency. This was partly offset by elevated natural peril claims at Youi Australia and expected start-up losses in Ireland. Encouragingly, Youi maintained strong momentum, with gross written premium growth of 21% excluding BZI.

We remain positive on the investment case. OUTsurance’s combination of underwriting discipline, capital flexibility and long-term offshore optionality continues to support its position as a high-quality compounder, despite some near-term earnings volatility.

Prosus: increasing exposure to AI value

We have recently switched our Aspen Pharmacare position in our clients' portfolios into Prosus, which we believe offers a more attractive risk-reward profile. While Aspen is trading broadly in line with our estimate of fair value, we continue to see meaningful valuation upside in Prosus.

The core of the Prosus opportunity remains its exposure to Tencent, which accounts for around 80% of net asset value and remains one of the highest-quality global technology businesses in our view. Tencent has sold off sharply – by about 30% – over the past six months amid concerns that increased AI investment could dilute margins in the short term. We see this as an attractive opportunity to increase exposure, given our belief that Tencent is a structural long-term beneficiary of AI adoption.

By contrast, we have lower confidence in Aspen’s medium-term earnings outlook, which introduces greater estimation risk. For Aspen to generate upside comparable to Prosus, 2029 earnings would need to come in at around 33% above our current forecasts – an outcome we currently view as unlikely.

Clicks: still dispensing defensive growth

Clicks Group delivered a solid performance for the first half of 2026, reinforcing the resilience of its defensive operating model in a subdued consumer environment. While store roll-out was slower during the period, management maintained full-year guidance of 40-50 new stores, with a credible medium-term target of 1 200 stores versus just over 1 000 currently. Continued expansion provides a clear opportunity for further market share gains.

Pharmacy remains central to the investment case, underpinning script capture, footfall and front-shop basket growth. Pharmacy sales increased 8.6%, with market share rising to 24.9%, while around 20% of existing stores still do not have a pharmacy installed. We continue to view the pharmacy roll-out as a compelling growth lever. Ongoing investment in prescription capabilities is driving growth in chronic scripts and higher-demand therapies, while also improving customer retention and operational efficiency over time.

The front-shop business continues to benefit from leading market share positions, particularly in beauty and personal care, alongside growing private-label penetration, which supported margin expansion to 10.3%. Overall, we continue to view Clicks as a high-quality business with a defensive earnings profile, strong cash generation and a long runway for profitable growth, supported by disciplined execution and its pharmacy-led ecosystem.

Charles Schwab: a clear pathway to earnings recovery

In the Sanlam Global High Quality Fund, we recently initiated a position in Charles Schwab, one of the world’s largest wealth management and brokerage platforms, administering more than US$10 trillion in client assets. Schwab occupies a central position in the US wealth ecosystem, particularly through its adviser services business, which provides critical infrastructure to independent financial advisers. The business continues to benefit from structural tailwinds, including growth in self-directed investing and rising asset flows into the independent adviser channel.

Recent market concerns have centred on Schwab’s cash monetisation model following the sharp rise in US interest rates since 2021. Higher rates prompted clients to shift cash into higher-yielding alternatives, temporarily pressuring net interest income, while a legacy portfolio of low-yielding securities continues to weigh on earnings. We view these challenges as cyclical rather than structural.

As securities mature and are reinvested at higher yields, and cash dynamics normalise, we see a clear pathway to earnings recovery. Schwab also benefits from increasingly diversified revenue streams across advisory fees, asset management, trading activity and lending. Combined with strong free cash flow generation, operating leverage and ongoing share buybacks, we believe the market is underappreciating the underlying quality and long-term earnings power of the business.

ICE: significant competitive advantages

Intercontinental Exchange (ICE) operates global exchanges, clearing houses and data services infrastructure, most notably owning the New York Stock Exchange. We have held the position for close to three years and continue to view ICE as a high-quality infrastructure asset with strong recurring revenues and significant competitive advantages derived from its deeply embedded position within global financial markets.

ICE delivered a strong first-quarter result, with net revenues rising 18% on a constant currency basis to US$3.0 billion, while adjusted operating income increased 26% and margins expanded to 65%. Performance was broad-based across exchanges, fixed income and data services, and mortgage technology, reflecting both elevated market activity and continued structural growth in the company’s data and workflow businesses.

The results also helped address recent concerns around AI-driven disruption risks within data and information services. Management highlighted continued demand for ICE’s proprietary pricing, analytics and reference data, particularly within regulated workflows where trust, governance and compliance remain critical. The mortgage technology segment continued to improve despite a subdued housing market.

We continue to view ICE as a high-quality compounder, supported by resilient recurring revenues, structural growth in trading activity and long-term upside from mortgage market normalisation.